HONG KONG (Reuters) - Bank of America sold $7.3 billion worth of shares in China Construction Bank on Tuesday, according to a source, just days after a U.S. government “stress test” found the struggling U.S. bank needed to find $34 billion worth of capital.
BofA unloaded the entire lot of 13.5 billion CCB shares it was allowed to sell, the source said, at HK$4.20 each, or a 14.3 percent discount to their Monday close.
The group of buyers included a unit of China Life Insurance Co Ltd, Singapore state investment group Temasek Holdings and China’s Hopu Investment Management Co, the source said. The source was directly involved in the deal but was not authorized to speak about it on the record.
The sale cut BofA’s stake in the world’s second-largest bank by market value to around 10.6 percent.
A lock-up period on the block of shares sold expired last Thursday, since when equity capital markets bankers had hit the phones to line up investors, hoping to get a mandate and a fee from finding buyers.
But the sale did not involve any of the major investment banks that worked on similar stock sales, with the source saying the block of shares was a “principle to principle” negotiated deal.
A $1.2 billion block of shares briefly placed in the market by an unnamed CCB shareholder early on Tuesday was part of BofA’s share sale, said the source. The bookrunner of that placement was brokerage BOCI, according to a term sheet obtained by Reuters.
CCB’s Hong Kong-listed shares closed up 1.6 percent at HK$4.96 after falling sharply on Monday.
“Since the placement has been expected, I would see a slightly positive impact from the share sale as the overhang was removed,” said Michael Tam, an analyst at South China Research.
“Buyers like China Life and Temasek are likely to hold the shares as longer term investments, especially as they bought the shares at a very attractive price below the stock’s fair value.”
A Bank of America spokesman declined to comment and an official with Beijing-controlled China Construction Bank could not be immediately reached for comment.
Bank of America had been expected to sell shares in CCB since the U.S. government ordered it to find new capital following its “stress test” of 19 large U.S. banks.
The discount is wider than when Bank of America offloaded $2.8 billion worth of CCB shares in January at 12 percent below the Chinese bank’s last traded price.
That same month, Royal Bank of Scotland sold a $2.4 billion stake in Bank of China at a 7.6 percent discount.
BofA agreed in June 2005 to pay $3 billion for a 9 percent stake in CCB — a shareholding that later grew to 16.7 percent. The deal, like other Western banks buying into Chinese lenders, was meant to be a long-term, cross-border partnership, but was sideswiped by the financial crisis that has prompted several Western banks to sell Chinese banks stakes to raise cash.
Two members of the consortium that bought the shares have strong, historic ties.
Hopu Investment Management is a Chinese private equity fund founded by Fang Fenglei, chairman of Goldman Sachs’ China joint venture. Hopu CEO Richard Ong, former co-head of Asia investment banking at Goldman, advised Temasek when the fund originally bought into CCB, said the source.
Temasek, one of the largest investment funds in the world, and Hopu teamed up last year to invest in iron ore company Hong Kong Lung Ming Investment Holdings.
Temasek owns stakes in several major financial institutions in Asia and across the globe. China Life is the world’s largest life insurer by market value.
The consortium also included other Chinese investors, whom the source did not identify.
Additional reporting by Tony Munroe, Clare Jim, Donny Kwok, Alison Leung and Victoria Bi in HONG KONG and Saeed Azhar in SINGAPORE; Editing by Jonathan Hopfner and Ian Geoghegan